Eurozone crisis: Do what the lady says

Embrace the principle of pain. Chancellor Angela Merkel delivers speech on Europe to the Bundestag, Berlin, 2 December 2011.
Embrace the principle of pain. Chancellor Angela Merkel delivers speech on Europe to the Bundestag, Berlin, 2 December 2011.
2 December 2011 – La Repubblica (Rome)

Europe must learn to co-operate with Germany, argues veteran Italian columnist Barbara Spinelli. Despite a reputation for being excessively stern and power-hungry, German rigour is nevertheless the only viable alternative to the Chinese model.

Since the eurozone debate turned acrimonious, sociologist Ulrich Beck has accused Germany of a cardinal sin: euro-nationalism. In putting aside democratic values and often behaving arrogantly, Angela Merkel seems to incarnate “a European version of Deutschmark nationalism,” elevating the German culture of domestic stability into a continental dogma. She is blamed for the fact technocrats have taken the place of European politicians. And the veto she slapped on the referendum announced and then withdrawn by former Greek Prime Minister George Papandreou speaks to the gap that has opened between Europe and democracy.

Substantial evidence supports the Beck perspective. Notwithstanding criticism from within her own party, from opposition figures, and even resistance from the so-called Five Wise Men (Sachverständigenrat) charged with advising German governments on economic decisions, Merkel still stubbornly rejects proposals that call on the European Central Bank to provide greater assistance to troubled states.

Germany wasn’t always so reluctant, at least in theory. The idea that in the absence of European political union, the euro was a risky undertaking, has arisen a number of times in the past, both within the Bundesbank and in the German constitutional court, but Berlin nevertheless soldiered on. But now, when it needs to move forward more urgently than ever, it is backing away, as if frightened by a snake.

Less cruel alternative to Chinese model

Some of the things that Beck denounces have also done the rounds of the European left (though not his arguments for a supra-national, “citizens” Europe), but many critics of German neo-nationalism do not share his point of view.

Some of the latter group objected to the Greek referendum not because it was too democratic but because it asked people to respond to spending cuts alone, which risked manipulating the citizenry rather than educating it. If Greeks had had to answer the real question ("Do you want to keep the euro?") it is not a foregone conclusion that the answer would have been a “No”.

What’s often overlooked is that the German culture of stability is not a monstrous thing. In fact, it’s a culture that is a much less cruel alternative to the Chinese and American models. It is founded on a respect for trade unions, on a consensus against delocalisation of industry, and on high salaries. Berlin has also deftly handled demographic issues. In 2000, it abolished lex sanguinis [right of blood] that barred foreigners born in Germany from becoming citizens.

If euro collapses, so does Germany

Germany’s severest critics know this, and therefore also hope its recent regression is reversible. Merkel’s slowness regarding Greece was disastrous (the last, lost 18 months sparked today’s chaos) but it also showed that German unease wasn’t a matter of imperial design but of a failure to follow through. In the eleventh hour Berlin didn’t give up on Athens.

For this reason it’s impossible to exclude a German change of heart, even a modest one, when leaders meet at the December 8-9 summit. Unless the crisis worsens, the German government will continue to reject the idea of sharing the debt load, and therefore Eurobonds. Making the ECB a lender of last resort will also be out of the question.

But something’s afoot. That was evident on November 23, when Berlin saw its own bonds in trouble and was forced to face reality head on. If the euro collapses, so does Germany, whose exports have boomed thanks to having a currency weaker than the Deutschmark.

Facing reality can take different forms, more or less stabilising matters or damaging them. If a truly powerful European Financial Stabilty Fund (EFSF) is the aim, it becomes incumbent on states to give Germany the assurance that such a fund will not facilitate a lax approach and instead will be used only to keep fiscal policies and state economies under control, with countries agreeing to abandon their sovereignty in that regard. Berlin would have to abide by the same guarantees.

Moral hazard

The issue of the ECB as a lender of last resort is more complex. Resistance doesn’t come just from Berlin but also from the European monetary authorities in Frankfurt. The ECB, they say, is a lender of last resort to banks, not states. The uncertainty regarding the length of time it will continue to buy up state sovereign debt on secondary markets projects an unreliable image, unlike the American Federal Reserve.

The Germany that leads Europe is at a crossroads. It has the choice of either making or unmaking the European Union. It is in full unmaking mode when it dreams of a small group of thrifty states, maybe reinforced by Eurobonds – an island of the Happy Few. That would be the most lethal possible solution. It would throw those eurozone states outside the magic circle to the wolves.

Perhaps at the next summit we will better understand where Berlin is going: towards a split in the EU or a more federal treaty. At the heart of the matter is what former Chancellor Helmut Schmidt referred to in 1996 as the “hypochondriacal German fear of the new,” as well as the fear that Berlin still conjures up in Europe.

The centrepiece of this fear is the concept of moral hazard. It’s the risk one takes if the spendthrifts, because “covered” or reassured, cease to maintain discipline and vigilance. It’s up to European institutions, and to all states, to show that hazard will diminish if, alongside this culture of stability, a lasting and reciprocal trust can see the day, which only European political unity can provide.

Translated from Italian by Christopher Winner

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